This Government Agency Can Make Drugmakers Billions

There's no argument: The Food and Drug Administration is the most important government agency for drugmakers. No FDA approval, no U.S. sales.

But for those making vaccinations and other drugs, an approval isn't enough -- an endorsement by the Centers for Disease Control and Prevention is equally important.

A recommendation worth billionsThe CDC makes recommendations about what vaccines should become the regimen to torture children with in doctors' offices. A recommendation for vaccination starts the ball rolling towards universal coverage. If nearly every kid gets a shot, the sales can be pretty impressive. Pfizer (NYSE: PFE) brought in over $3.6 billion from sales of Prevnar 13 last year.

The only exception to that CDC requirement might be for a combination vaccine like Glaxo's MenHibrix, which combines vaccines for meningococcal and haemophilus influenzae type b into a single shot. If it ever gets approved -- it's back under review after the FDA rejected it twice -- doctors might be inclined to use it out of the gate, since there are vaccination schedules already in place for the individual markets.

Babies no moreGrabbing the recommendation to vaccinate children hasn't been enough for some drugmakers. They're moving on to adults.

Pfizer got Prevnar 13 approved for use in older adults at the end of last year, based on its ability to elicit an immune response. But the CDC has decided to wait until it's clear the vaccine is decreasing the likelihood of getting pneumonia before recommending that every adult above 50 years of age be vaccinated.

Pfizer still plans to market Prevnar 13 for older adults, but we'll have to wait and see how doctors and health-insurance plans interpret the mixed message of an approval without a recommendation to use it.

Merck (NYSE: MRK) has used the same strategy with its HPV vaccine Gardasil, requesting that the drug be approved to treat older women, but thus far the FDA has said no. Merck was able to extend the indication into males, arguing that the virus that causes cervical cancer in women also causes genital warts that are worth protecting against. The CDC followed suit with a recommendation that boys be vaccinated.

Bird flu, swine flu, oh myThe CDC is also involved in monitoring and making decisions about pandemic flues. Novartis (NYSE: NVS) , sanofi-aventis (NYSE: SNY) , AstraZeneca, and GlaxoSmithKline all made millions -- and in the case of Glaxo and Novartis, a cool billion -- off the H1N1 swine-flu pandemic in 2009.

The added income was nice, but the next time a pandemic comes around -- and there will be a next time -- keep in mind that it's a one-time bump. Companies kick into overdrive to push out as many doses as possible, but then the revenue ends as quickly as it started once the pandemic is quashed.

Pre-approval payDrugmakers developing vaccines for pandemic flus can actually get paid to develop their vaccines. Biomedical Advanced Research and Development Authority, or BARDA, hands out contracts to encourage companies to develop their vaccines and drugs for other potential threats like bioterrorism.

Last March, Novavax (Nasdaq: NVAX) got a contract from BARDA worth up to $179 million over five years to develop its recombinant virus-like particle (VLP) approach to developing vaccines. VLPs, which are just a part of the virus, can be made rather quickly, unlike traditional vaccines that are produced in chicken eggs.

Novartis has also moved away from chicken eggs, having recently completed construction of a manufacturing plant -- partially funded by BARDA -- that produces viruses in cultured animal cells. The public-private partnership will be maintained under contract for at least 25 years, ensuring that Novartis makes something even if no pandemic flu happens.

Pay attentionIf you're going to invest in drugmakers developing vaccines, keep in mind that an FDA approval is only half the battle. To get the full coverage, you've got to pay attention to the CDC as well.

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